A Chain Round The Corner

Agrees Anil Rajpal, associate vice president, KSA Technopak, "Currently, local sourcing is very small. If others come in, this is bound to increase as all of them will use India as a sourcing hub, apart from buying 80-90 per cent of the products for their stores. This will improve the export competitiveness of the local manufacturers." Adds Raj Jain, "One of the key reasons for Wal-Mart's success is that in every location where we operate, we are local. We source local products from local suppliers that appeal to local tastes, needs and fashion."

Several pro-FDI analysts point out that the fears about a possible wipe-out of smaller stores are unfounded. They say that studies initiated by the government have concluded that FDI in retail will not be detrimental to the interests of the millions engaged in the unorganised trade. One of them was by the Academy of Business Studies and World Trade Centre at the behest of the department of commerce. It stated that the opening up of retail to foreign players on a regional basis will help India's exports.

The government had also asked ICRIER to study the implications of FDI in retail. The ICRIER report stated that organised retail was not harming the country's farmers, and was unlikely to adversely impact small stores. It added that in the initial stage, 49 per cent FDI should be allowed, which could be raised to 100 per cent in three to five years depending on the sector's growth. Since ICRIER was told to expand the scope of its study, its final report is expected next month.

Despite such evidence, it will be difficult for the government to allow FDI in multi-branded retail stores. The reasons: the issue is a politically sensitive one, national elections are round the corner, and the Left parties, who have considerable clout at the Centre, are totally opposed to it. In fact, even before the Bharti-Wal-Mart announcement this month, the Left parties were against the entry of MNCs.

In its recent proposal for a national policy for organised retail, the CPI(M) said that global retail giants would accelerate the rapid growth of organised retail, and also "sabotage any attempt by the government to regulate the sector in order to protect the interests of the small retailers and farmers. TheUPA government should take a categorical position on this issue. Not allowing MNCs to operate in the retail sector should be the starting point of the national policy on retail."

For the Left, organised retail, and just not FDI, is harmful. To prevent unrestricted growth by private players, they have already suggested that the government should opt for a licensing system as a controlling mechanism, not unlike what has happened in the telecom space. Some of the existing Indian companies are now asking for the same to ensure legal entry barriers for newcomers and foreign competitors.

But what is more ominous for the Bharti-Wal-Mart JV is that the CPI(M) is specifically targeting it. In the same proposal mentioned earlier, it stated that "theUPA government should also abandon the moves to permit FDI in retail trade through the backdoor, as in the case of the joint venture between Wal-Mart and Bharti whereby the former proposes to operate in the cash-and-carry segment while the latter in the front-end. It is more than obvious that this proposed joint venture is nothing but a subterfuge, to circumvent the existing policy regime, which does not allow FDI in retail. "

Therefore, although Bharti and Wal-Mart have a workable strategy that will allow the foreign partner to have a major say even in the frontend retail operations, it will not be easy to find a way out of the legal maze. The US giant will have to tread very carefully; it will first have to prove the immense benefits of its backend operations before really interfering with the decisions relating to Bharti's retail outlets. In effect, Wal-Mart will have to jump over several walls to reach the Indian consumer.